January 2014 and 2015 puts active on AMD

If one large-scale option speculator is to be believed, Advanced Micro Devices, Inc. (NYSE:AMD) won't be on the road to recovery for a very long time. In fact, based on trades that crossed the tape in Tuesday's session, this trader expects price action to worsen in the semiconductor name over the next couple of years.

Overall put volume was notable on Tuesday, tripling the average pace and slightly exceeding call volume. Responsible for the bulk of the 19,000 puts that traded, however, was the one aforementioned mega-bear. In the early afternoon, a block of 5,000 January 2014 2.5-strike puts traded at the ask price of $0.39 per contract. Shortly thereafter, a block of 10,000 January 2015 2-strike puts crossed the tape, also at the ask price (which was $0.50 at the time). Both options saw heavy open-interest gains overnight, suggesting these were likely new bearish positions being opened.

In short, it looks as though this speculator expects AMD shares to fall south of $2.11 (strike price less premium paid) by next January, and then continue lower throughout 2014. Breakeven at expiration of the 2015-dated LEAPS is $1.50, which is 47% south of the stock's current perch at $2.83. The lowest AMD has traded in recent history is $1.62, which the shares touched in November 2008. Delta on the longer-dated bet is currently negative 0.20, giving the option a 1-in-5 chance of being in the money when expiration rolls around in 20 months. The shorter-dated, higher-strike put carries a delta of negative 0.31.

Yesterday's bearish campaign is a break from what we have been noticing on the stock of late, even when it comes to long-term speculators. During the last 50 days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 100 AMD calls have been bought to open for every 33 puts. The resultant put/call volume ratio of 0.33 is in the bottom 39% of the past year's readings, suggesting the demand for long calls is higher than usual.

Although Advanced Micro Devices, Inc. is down nearly 60% year-over-year, it has bounced sharply higher from its annual low of $1.81, hit on Nov. 16. In the ensuing months, AMD has recovered more than 55%. During the last three months, however, the shares have been shuffling sideways, contained beneath technical resistance at the $3 level. Still, the equity has to make some sharp moves to the downside over the long term in order to reward Tuesday's aggressive bearish trader.